25 Jun 2020 1 min

Will the Fed pump up the price of gold?

Having injected some $3 trillion in just three months, expanding total assets from $4158 billion to $7097 billion, the Fed seems to be aiming decisively at controlling the US yield curve, with respect to which, for short to medium maturities, there is even talk of target rates below inflation.

This policy of negative real rates would find its rationale in the largest QE effort by the central bank since 1929, not comparable in intensity and time concentration even to that which followed the credit-crunch of 2008.

If this becomes reality, the dollar could return to its lowest level in decades against the euro, and cause a liquidity drain towards gold, which has always been negatively correlated with US real rates.

For this reason, the current gold prices, already close to historic highs, could persist and even strengthen for the duration of the current monetary stimulus, which is the most massive in history.

Research Centre - Hetica Capital